Suppose that disposable income, consumption, and saving in some country are $800

Question

Suppose that disposable income, consumption, and saving in some country are $800 billion, $700 billion, and $100 billion, respectively. Next, assume that disposable income increases by $80 billion, consumption rises by $72 billion, and saving goes up by $8 billion. a. What is the economy's MPC? Instructions: Round your answers to 2 decimal places. MPC What is its MPS MPS b. What was the APC before the increase in disposable income? Instructions: Round your answer to 2 decimal places APCbefore What was the APC after the increase? Instructions: Round your answer to 3 decimal places. APCafter

Explanation / Answer

a.

DI

C

S

800

700

100

880

772

108

MPC

0.9

MPS

0.1

MPC = Change in consumption/Change in disposable income = (772-700)/(880-800) = 0.9

MPS = 1- MPC = 1-0.9 = 0.1

b.

APCbefore = C/DI = 700/800 = 0.875

APCafter = C/DI = 772/880 = 0.877

DI

C

S

800

700

100

880

772

108

MPC

0.9

MPS

0.1

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